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Category: Category - Accounting in Corporates

If the question is focused on a topic that is done mostly in companies and can not be classified under any other head, then it should be put in this category.

Discy Latest Questions

  1. This answer was edited.

    In my opinion, following are some of the difficult adjustments in final accounts. Sr No. Adjustments 1st effect 2nd effect 1 Uninsured goods destroyed by fire/accident Trading A/c - Credit side (Gross amount) Profit & Loss A/c - Debit side (Gross amount) 2 Insured goods destroyed by fire/accidenRead more

    In my opinion, following are some of the difficult adjustments in final accounts.

    Sr No. Adjustments 1st effect 2nd effect
    1 Uninsured goods destroyed by fire/accident Trading A/c – Credit side (Gross amount) Profit & Loss A/c – Debit side (Gross amount)
    2 Insured goods destroyed by fire/accident (eg. 50,000 worth of goods destroyed & insurance company accepted the claim of 40,000) Trading A/c – Credit side (Gross amount ie. 50,000) a. Balance Sheet – Asset side (Claim amount ie.40,000)
    b. Profit & Loss A/c – Debit side (Amount of Loss ie.10,000)
    3 Unrecorded Purchases Trading A/c – Debit side (Add to Purchases) Balance Sheet – Liability side (Add to Creditors)
    4 Unrecorded Sales Trading A/c – Credit side (Add to Sales) Balance Sheet – Asset side (Add to Debtors)
    5 Provision for Discount on Debtors Profit & Loss A/c – Debit side Balance Sheet – Asset side (Deducted from Debtors)
    6 Provision for Discount on Creditors Profit & Loss A/c – Credit side Balance Sheet – Liability side (Deducted from Creditors)
    7 Bills Receivable dishonoured Balance Sheet – Asset side (Add the amount of bills dishonoured to Debtors) Balance Sheet – Asset side (Deduct the amount of bills dishonoured from Bills Receivable)
    8 Bills Payable dishonoured Balance Sheet – Liability side (Add the amount of bills dishonoured to Creditors) Balance Sheet – Liability side (Deduct the amount of bills dishonoured from Bills Payable)
    9 Deferred Expenses (eg. Advertisement expenses paid for 5 years) Profit & Loss A/c – Debit side (Advertisement expenses related to current year ie. 1/5th of Total) Balance Sheet – Asset side (Remaining amount of advertisement is shown as Prepaid advertisement ie. 4/5th of Total)
    10 Revenue Receipts included in Capital Receipts (eg. Sale of Goods included in Sale of Furniture) Trading A/c – Credit side (Add to Sales) Balance Sheet – Asset side (Add back the sales amount to Furniture)
    11 Revenue Expenditure included in Capital Expenditure Trading A/c /Profit & Loss A/c – Debit side (Add to that particular Revenue Expenditure) Balance Sheet – Asset side (Deduct from that particular asset)
    12 Capital Expenditure included in Revenue Expenditure Trading A/c /Profit & Loss A/c – Debit side (Deduct from that particular Revenue Expenditure) Balance Sheet – Asset side (Add to that particular asset)
    13 Manager is allowed commission at a certain % on Net Profit

    a. If commission eg.10% is quoted on “Net Profit before charging such commission”:
    Commission amount = Profit before commission * 10/100

    b. If commission eg.10% is quoted on “Net Profit after charging such commission”:
    Commission amount = Profit before commission * 10/110

    Profit & Loss A/c – Debit side (Manager’s Commission) Balance Sheet – Liability side (Outstanding Manager’s Commission), OR
    Balance Sheet – Asset side (Reduce from Cash/Bank)
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  1. This answer was edited.

    The differences between cost centre and cost unit are as follows: PARTICULARS COST CENTRE COST UNIT MEANING A cost centre refers to the costs incurred about any part of the organisation such as activities, different functions, service or production location, etc. These departments or functions do noRead more

    The differences between cost centre and cost unit are as follows:

    PARTICULARS COST CENTRE COST UNIT
    MEANING A cost centre refers to the costs incurred about any part of the organisation such as activities, different functions, service or production location, etc. These departments or functions do not affect the profit of the organization directly however, monetary costs are incurred to operate the same. Cost unit refers to the cost incurred on a measurable unit of product or service of the organization.
    FUNCTION The main function of a cost centre is to classify costs as well as track expenses. It functions as a standard of measure for making comparisons with other costs.
    COST MEASURE The overall costs in a cost centre are gathered by the cost units. The unit of cost absorbs all the overhead costs. The overall costs are measured in terms of direct and indirect costs of tangible units.
     

    ASCERTAINMENT

    It is determined through the efficiency of operations, services provided to the customers, organizational structure, size, technique of production etc. It is determined as per the final products and trade practices. However, it is strictly not restricted to the same.
    RANGE Even if a single product or service is provided there are a lot of cost centres. Every individual product or service has a different cost unit.

     

     

     

    EXAMPLES

    A company’s IT, accounting, Research and development department, manufacturing activities, customer services, etc.  Automobile industry – no. of vehicles, gas – cubic metre, education – student year, etc.

     

    Hope this helps.

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  1. This answer was edited.

    The bank reconciliation statement (BRS) is prepared by the accountant of the business. It is prepared periodically to match all the bank transactions in the cashbook with the bank statement and ensure the accuracy of the same. The questions of who, why, and when usually go hand in hand, therefore, IRead more

    The bank reconciliation statement (BRS) is prepared by the accountant of the business. It is prepared periodically to match all the bank transactions in the cashbook with the bank statement and ensure the accuracy of the same. The questions of who, why, and when usually go hand in hand, therefore, I would like to familiarize you with all the three, in brief, to make the concept simpler.

    Why and when is a bank reconciliation statement prepared?

    After a brief introduction, you might be wondering why and when is a bank reconciliation statement prepared by the accountant. As the closing balance of the cash book and that of the bank statement do not match in the books of accounts the accountants maintain a bank reconciliation statement. There are plenty of reasons why the balances do not match and some of them are as follows:

    • The rate of interest or charges was not known at the time of recording transactions therefore no account is found.
    • Cheques were issued by the company but not cleared by the bank.
    • There is a mismatch in the date of entry and date of credit.

    Due to some of the reasons as mentioned above, the closing balance in the books of accounts of the organization and that of the bank will not match, therefore, the accountants maintain a bank reconciliation statement depending on the value of the transactions. In case the value of the transactions is high, the statement is reconciled on a daily or weekly basis whereas in case of small transactions it is usually done monthly or as per the will of the organization.

    Steps in preparation of a bank reconciliation statement

    The following steps are usually followed by the accountants to prepare a BRS:

    BRS STEPS

    Hope this helps.

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  1. This answer was edited.

    I will first summarise in a few sentences what does a service centre mean and then give examples thereof. Meaning of Service Center A service centre is a small unit or a department of an organization which provides services to other departments or units within the organization. The cost incurred byRead more

    I will first summarise in a few sentences what does a service centre mean and then give examples thereof.

    Meaning of Service Center

    A service centre is a small unit or a department of an organization which provides services to other departments or units within the organization. The cost incurred by the service centre for providing services is charged to the department using such service.

    Examples of Service Center

    Case 1

    ABC Ltd has departments such as Manufacturing unit, Information Technology unit, Repairs and Maintenance, Accounting and Finance unit. ABC Ltd. primarily is engaged in manufacturing printers and heavy industrial machinery.

    When the customer has any issues the repairs and maintenance wing resolves the issue. Its manufacturing unit uses complex machines and in case of any technical fault or breakdown, it uses the services of repairs and maintenance department. And thus the repairs dept. in such a case can be called as a service centre.

    Taking the same case the manufacturing unit as well as the accounting and finance unit uses the laptops and printers. When the personnel of these department faces any difficulties with their laptops and printers the I.T Team guides them to resolve the same hence, the I.T dept. is also qualified to be termed as a service centre.

    These departments may charge the service cost. The managers of the manufacturing and accounting unit have the authority to decide if they are willing to utilize their services or avail the services from outside.

    This was a hypothetical example.

    Now let’s analyse a real-life corporate example-

    Case 2

    ITC Ltd is engaged in various businesses. Some of them are Hotel business, FMCG business, Printing and Paper, a Packaging business, Agri products, Information Technology etc.

    Its Packaging Division supplies value-added packaging to ITC’s various FMCG businesses.

    Its client list includes several well-known national and international companies like Nokia, Colgate Palmolive, Pernod Ricard, Diageo, British American Tobacco, Philip Morris International, Agio Cigars, UB Group, Tata Tetley, Tata Tea, Reckitt Benckiser, Radico Khaitan, Akbar Brothers, Surya Nepal, VST Industries, etc.

    Thus, it can be said that the packaging division is a service centre for ITC’s FMCG unit. The packaging division will charge an amount from FMCG division such amount can be the actual cost incurred or cost plus certain % of profit.

    The managers or executives of FMCG division may may decide to outsource its product packaging function if the price charged by the packaging unit does not fit into its budget.

     


    Aastha.

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  1. This answer was edited.

    I think firstly you should have a glance over the concept of cost centre and then try and apply the concept while interpreting below given example. Meaning 0f a Cost Centre It's a smaller part of a larger organization wherein the manager of such unit is responsible to keep cost inline or within theRead more

    I think firstly you should have a glance over the concept of cost centre and then try and apply the concept while interpreting below given example.

    Meaning 0f a Cost Centre

    It’s a smaller part of a larger organization wherein the manager of such unit is responsible to keep cost inline or within the budget. Unlike profit centres, the managers of the cost centre do not have any direct responsibility for the profits of the organization.

    Few Examples of Cost Centre

     

    Example of a cost centre

    In the case of Walmart, its corporate office will have an accounting department, marketing department, information technology department. These departments do not generate any revenue.

    Take up the Accounting department- one can not argue that the accounting dept. is responsible for generating revenue. It will have only one responsibility to incur cost within the specified budget.

     

    Example of a cost centre

    In the case of XYZ Ltd., the marketing dept, finance dept and production dept are the primary cost centres but the sales executives Mr A, B and C are also considered as cost centres. This will help the organization to track its performance.

     

    example of a cost centre

    In the case of ABC university the reading hall, computer lab and careers i.e its HR dept. are the cost centres as these departments only incur the cost and help in providing better educational services but the manager or an in charge of these departments are not engaged directly with generating revenue.

     

    Example of cost centre

    Here in the case of Uber Inc. the human resources department, project managers and customer service department are cost centres as these do not generate revenue directly. We will analyse the HR department-It does not generate revenue as its the administrative department but it’s an essential part of an organisation. It helps in storing data of the employees, manages their complaints, hiring, promoting and terminating employees of the organisation.

    The project managers are responsible to plan a project they are also responsible to prepare its budget and track its progress. They as such do not add up to the profit but are important to complete the project.

     

     


    Aastha Mehta.

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  1. This answer was edited.

    The normal balance of dividend is "Debit". Firstly, you should know what a normal balance in accounting means. Normal Balances in Accounting Some accounts have  "Debit" Balances while the others have  "Credit" balances. The normal account balance is nothing but the expectation that the specific accoRead more

    The normal balance of dividend is “Debit”.

    Firstly, you should know what a normal balance in accounting means.

    Normal Balances in Accounting

    Some accounts have  “Debit” Balances while the others have  “Credit” balances. The normal account balance is nothing but the expectation that the specific account is debit or credit. Few accounts increase with a “Debit” while there are other accounts, the balances of which increases while those accounts are “Credited”.

    You can have a glance over the list of accounts having a debit and credit balances normally specified below-

    Particulars Debit Credit
    Assets Yes No
    Liabilities No Yes
    Owner’s Equity No Yes
    Revenue No Yes
    Expenses Yes No
    Dividend Yes No
    Retained Earnings No Yes

    Since you are now aware of normal balances in accounting. I will move ahead with the next concept.

    Why do dividends have a debit balance?

    Generally, the company or corporates pay dividends to its investors. It is paid out of the company’s retained earnings or free reserves and since it reduces the balance of reserves it is “Debited”. It is also recorded under financing activity under the cash flow statement.

    But one needs to note that the dividends declared are basically a temporary account i.e at the end of the reporting period the balance in the dividend account is transferred to Retained Earnings. And the dividend account is closed.

    The company also has an option to directly give effect for dividend declared in the retained earnings. Here, there is no need to prepare the dividend account.

    Conclusion

    Since dividend payments are reduction of retained earnings for an entity it has a debit balance as its reduction of share holder’s equity. As per the modern rules, we debit the decrease in the capital.

    But the company also has an option to directly record this transaction through its retained earnings and in such a case the dividend declared account is not created and so the question of it having a debit or credit balance does not arise.

    I hope this was helpful.


    Aastha Mehta.

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  1. This answer was edited.

    To begin with, financial reporting is mainly of two types: External and Internal. Reports are prepared for stakeholders (external) as well as the managers (internal) of the organization. The different components of financial reporting are as follows: 1. The financial statements of a company- the incRead more

    To begin with, financial reporting is mainly of two types: External and Internal. Reports are prepared for stakeholders (external) as well as the managers (internal) of the organization.
    The different components of financial reporting are as follows:

    1. The financial statements of a company- the income statement, balance sheet, cash flow statements, and the statement of shareholders equity.

    2. The notes to financial statements

    3. The quarterly and annual reports of a company

    4. Prospectus

    5. Management discussion & analysis

    1. The financial statements

    Income statement – The income statement of a company shows the revenues, expenses, net income, and earnings per share. It is the most important financial statement because it depicts the overall performance of a company.

    Statement of financial position – It comprises of a companies assets, liabilities, and equity.

    Cash flow statement – A cash flow statement shows the monetary position of a company with the help of cash inflows and outflows during a particular financial period.

    Statement of equity – This financial statement shows the changes in owners’ equity over a financial period.

    2. The notes to financial statement

    While recording and classifying the above mentioned financial statements in the books of accounts, the accountants have to maintain various notes to separately show the working. These notes comprise of adjustments such as depreciation, interest, dividends, prepaid expenses, accrued income, etc.

    3. The quarterly and annual reports of a company

    These types of reports are usually prepared in the case of listed companies. These reports comprise of the financial statements and their notes to accounts.

    4. Prospectus

    In terms of finance, a prospectus is a document that portrays the financial security for potential buyers. It is usually recorded in the financial reports of those companies that are going for IPOs.

    5. Management discussion and analysis

    The preparation of a financial report involves the approval at all managerial levels and close analysis to avoid any kind of mistakes. However, this usually takes place in the case of public companies.  

    Hope this helps.

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  1. This answer was edited.

    Importance of Financial Reporting The importance of financial reporting cannot be exaggerated. It is considered as a primary requirement of all the stakeholders for many reasons and purposes. Financial reporting discloses the position, liquidity and performance of the company. The following key poinRead more

    Importance of Financial Reporting

    The importance of financial reporting cannot be exaggerated. It is considered as a primary requirement of all the stakeholders for many reasons and purposes. Financial reporting discloses the position, liquidity and performance of the company. The following key points highlight why is financial reporting framework important-

    1. Financial Reporting is required by the law for performing statutory audits on the company financial statements and reports. These statements help the auditors to express their opinions on the fairness of the financial statements.

    2. Financial Reporting is considered as the best tool for formulating the internal decision of an organization by providing accurate and updated information on financial statements.

    For example- Lenovo Inc profit and loss account registered a sharp decrease in net profit due to the use of obsolete technology and poor battery life. Hence the company management should focus on improving overall performance and formulating new strategies to regain customer trust and improve business performance.

    3. Financial Reporting discloses financial statements that give an idea to the external users (say- creditors, third parties, banks and investors) on the financial creditworthiness, soundness, integrity and liquidity position of the company.

    For Example- Apple Inc registers a sharp increase in the profit every year and has a strong brand name, credibility and customer base across the world. Due to these reasons, the company has capacity procure funds from the banks and NBFCs. This helps the company to grow, prosper and generate huge loans.

    4. Financial Reporting software provides vital information which can be used by the company for making quick and informed business decisions. Such as opening a new business branch across the country.

    5. Financial Reporting acts as a backbone to financial planning, decision and policymaking, financial analysis and is responsible for maintaining company standards.

    6. Financial Reporting helps companies and organization to raise share capital by attracting domestic and foreign investments through marketing, promotions and providing high returns on investments in the form of share dividends.

    For Example- HSBC Bank pays off a higher percentage of dividend to its shareholder than compared to other banks. This helps to bank to attract new domestic and foreign investments thereby issuing shares to new shareholders. Financial reporting helps the bank in attracting shareholders by publishing financial statements in newspapers, magazines and prospectus.

    7. Financial Reporting helps the employees and workers to understand and analyze the position and performance of the ownership as well as management of a company or an organization based on the audited financial statements.

    For Example- Amazon has recorded a sharp spike in profits after deducting corporate taxes and other duties. The company management has decided to pay bonus and incentives over and above its basic pay to all its prospects employees. This motivates the employees to work even harder and deliver better services to its clients

    8. Financial Reporting furnishes financial information which helps the organization in bidding and negotiating a better business contract. It helps the government in framing suitable economic plans and policies by assessing financial statements and business performance.

    Conclusion

    We can conclude that financial reporting plays an important role in not only helping the organization to derive long-term profits but also creates an opportunity to expand and diversify the business by setting up long-term goals and better business strategies.

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  1. This answer was edited.

    Retained Earnings is generally a credit. It will be "credited if its balance increases" and "debited if its balance decreases". To help you understand the statement given above, it is important for you to first interpret the meaning of retained earnings. Meaning of Retained Earnings Retained EarningRead more

    Retained Earnings is generally a credit. It will be “credited if its balance increases” and “debited if its balance decreases”.

    To help you understand the statement given above, it is important for you to first interpret the meaning of retained earnings.

    Meaning of Retained Earnings

    Retained Earnings is the accumulated net income of an entity at the end of an accounting period that is retained by it to meet any future contingencies, invest in the expansion activities, payment of dividends to its shareholders, etc.

    Retained Earnings = Opening Retained Earnings +/- Net Profit/(Loss) during the current period – Dividend paid in the current period +/- Prior period adjustments, etc.

    If the balance of retained earnings is negative, then it is referred to as accumulated losses/deficit, retained losses.

    Why is Retained Earnings generally credited?

    Retained Earnings are a part of “Shareholders Equity” presented on the “Liabilities side” of the balance sheet.

    This is because it indicates the company’s liability to the owners or shareholders. The company cannot utilize the retained earnings until it is approved by its shareholders.

    Also, the modern approach of accounting for liabilities states-

    Credit the increase in liability, Debit the decrease in liability.

    Therefore, considering it as a liability and following the modern approach of accounting, we can conclude that retained earnings will be generally credited.

    It will generally show a credit balance.

    Now, moving forward let me help you understand the instances in which retained earnings are credited or debited.

    When is Retained Earnings credited or debited?

    1. Retained Earnings are credited with the Net Profit earned during the current period. Crediting the retained earnings will increase its balance.

    Example

    Samsung Inc. earned a net profit of 500,000 during the accounting period Jan-Dec 20×1.

    Journalizing this transaction for transferring the net profit earned to retained earnings will be-

    Net profit Debit 500,000 Transferring net profit earned to retained earnings
     To Retained Earnings Credit  500 ,000 Credit the increase in the balance of retained earnings

    2. Some instances which reduce the balance of retained earnings are-

    a. Net loss during the current period
    b. Dividend payable
    c. Bonus Shares issued, etc.

    Retained Earnings will be debited with these transactions.

    Example

    Shareholders of Apple Inc. approve the dividend declared by the board of directors amounting to 100,000. So, the journal entry for the dividend payable by Apple Inc. will be-

    Retained Earnings Debit 100,000 Debit the decrease in the balance of retained earnings
     To Dividend Payable Credit  100,000 Credit the increase in liability
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  1. This answer was edited.

    Yes. But first, let me familiarize you with the meaning of Chart of Accounts. Meaning of Chart of Accounts Chart of Accounts is a numbered listing (account codes) of the various accounts that form part of the accounting records of an entity. The codes used help to group similar accounts together. FoRead more

    Yes. But first, let me familiarize you with the meaning of Chart of Accounts.

    Meaning of Chart of Accounts

    Chart of Accounts is a numbered listing (account codes) of the various accounts that form part of the accounting records of an entity. The codes used help to group similar accounts together. For eg. if you want to see only the operating expenses incurred. In this case, you need to enter only the range code assigned to operating expenses & you will get all the operating expenses transactions together at one place.

    Chart of Accounts varies from one entity to another depending on the size of the entity.

    Example of Chart of Accounts

    In the example given below, 1st digit of the numeric codes signifies different account types. “1” represents assets, “2” represents liabilities, “3” represents equity, “4” represents revenues, & “5” represents expenses.

    Sr No. Numeric range Account type Financial Statements
    1 1000-1999 Assets Balance Sheet
    1000-1499 Non-Current Assets
    1500-1899 Current Assets
    1900-1999 Contra Assets
    2 2000-2999 Liabilities Balance Sheet
    2000-2499 Non-Current Liabilities
    2500-2999 Current Liabilities
    3 3000-3999 Equity Balance Sheet
    4 4000-4999 Revenues Profit & Loss A/c
    4000-4499 Operating Income
    4500-4999 Non-Operating Income
    5 5000-5999 Expenses Profit & Loss A/c
    5000-5499 Operating Expenses
    5500-5999 Non-Operating Expenses
    1000-1499 Non-Current Assets 2000-2499 Non-Current Liabilities
    1000 Property, Plant & Equipment 2000 Long term debts
    1010 Buildings 2010 Loan from Financial Institutions
    1020 Land 2020 Loan from Others
    1030 Plant & Machinery
    1040 Furniture & Fixtures 2500-2999 Current Liabilities
    1050 Computer & Peripherals 2500 Accounts Payables
    1060 Leasehold Premises
    1070 Vehicles 2600 Short term debts
    2610 Loan from Financial Institutions
    1100 Intangible Assets 2620 Loan from Others
    1110 Goodwill
    1120 Patent 2700 Other Current Liabilities
    1130 Copyrights 2710 Pre-received Income
    1140 Trademarks 2720 Outstanding Expenses
    1150 Design
    1160 Software 3000-3999 Equity
    3100 Capital Contribution
    1200 Long term Investments 3200 Retained Earnings
    1210 Investment in shares
    1220 Investment in bonds 4000-4499 Operating Income
    1230 Investment in govt securities 4100 Sale of Goods
    4200 Sale of Services
    1300 Long term Loans & Advances
    4500-4999 Non-Operating Income
    1500-1899 Current Assets 4600 Interest from Investments
    1500 Accounts Receivables 4700 Dividend from Investments
    4800 Profit from Sale of Fixed Assets
    1600 Cash & Cash Equivalent 4900 Profit from Sale of Investments
    1610 Bank-Current A/c
    1620 Bank-OD A/c 5000-5499 Operating Expenses
    1630 Petty Cash 5000 Purchase of Raw Materials
    5050 Employee Benefit Expenses
    1700 Inventories 5100 Rental/Lease Expenses
    1710 Work-in-Progress 5150 Depreciation
    1720 Finished Goods 5200 Amortization
    1730 Raw Materials 5250 Professional Fees
    5300 Legal Expenses
    1800 Other Current Assets 5350 Electricity Expenses
    1810 Prepaid Expenses 5400 Repairs & Maintenance
    1820 Accrued Income 5450 Advertising Expenses
    1900-1999 Contra Assets 5500-5999 Non-Operating Expenses
    1910 Accumulated Depreciation 5500 Loss from Sale of Fixed Assets
    1920 Accumulated Amortization 5600 Loss from Sale of Investments

    A downloadable excel sheet has been attached for your reference.

    Example of Chart of Accounts

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  1. This answer was edited.

    Yes. But let us first interpret the meaning and importance of the month-end close checklist. Month-end closing is an accounting procedure that accountants usually undertake at the end of the month to close the accounting records for a particular month. So, a month-end closing checklist guides the enRead more

    Yes. But let us first interpret the meaning and importance of the month-end close checklist.

    Month-end closing is an accounting procedure that accountants usually undertake at the end of the month to close the accounting records for a particular month. So, a month-end closing checklist guides the entire month-end closing procedure.

    It is crucial as it helps us remember things we might otherwise skip while finalizing the monthly books of accounts. Also, you can fix any discrepancies at the earliest, rather than it getting piled up at the year-end.

    Illustrative checklist for month-end closing of accounting records

    Month-end close checklist

    Month & Year ____________ Initials Date
    Cash and Bank
    1 Reconcile bank accounts and verify that bank balance on bank reconciliation agrees with respective bank statement balance
    2 Review and approve bank reconciliations and ensure all reconciling items have been researched and properly resolved
    3 Prepare and review the list of cheques outstanding after their expiry period eg. more than 90 days, 60 days, etc (stale cheques)
    Accounts Receivable
    1 Generate and review A/R Aging report and determine whether any A/R balances need to be written-off
    2 Request for ledger confirmations from debtors, in case of any discrepancies
    3 Review A/R aging for any unapplied credits (credits in the bank account for which the payer could not be traced before)
    Fixed Assets
    1 Review new fixed assets purchased and verify whether they have been recorded properly in the books
    2 Verify proper asset classification
    3 Review additions/disposals of fixed assets and verify whether the same have been added/removed from fixed asset records
    4 Record depreciation expenses for the current month
    Inventory
    1 Perform monthly inventory count, if possible
    2 Determine if any obsolete inventory exists that needs to be written off
    3 Reconcile the manual inventory records with the accounting inventory records
    Intercompany Accounts
    1 Verify that intercompany payables and receivables have the same balance in each entity’s books
    Loans taken
    1 Verify whether the outstanding loan balance as per the books tallies with the loan schedule provided by banks or financial institutions
    Accounts Payable
    1 Generate and review A/P Aging report and determine outstandings to be settled immediately
    2 Request for ledger confirmations from creditors, in case of any discrepancies
    Investments
    1 Obtain investment statements
    2 In the case of short term investments, verify whether realized and unrealized gain/loss have been recorded properly
    Revenue and Expense accounts
    1 Check whether expenses & revenues have been recorded in the correct accounts or whether re-classification to another account is required
    2 Identify outstanding & prepaid expenses and verify whether they have been properly adjusted from the respective expense account
    3 Review whether outstanding & pre-received incomes have been properly adjusted from the respective income account
    4 Check for expenditures that should be capitalized

    A downloadable excel sheet has also been attached for your reference.

    Month-end close checklist

    Hope after reading this you might have got an insight of the checklist for month-end closing.

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  1. This answer was edited.

    Accounts that do not get closed at the year-end Traditional Perspective- According to traditional accounting perspective, personal (say- creditors, debtors, capital etc) and real accounts (say- land, machinery, patents etc) are not closed and their balances are carried forward for the next accountinRead more

    Accounts that do not get closed at the year-end

    • Traditional Perspective– According to traditional accounting perspective, personal (say- creditors, debtors, capital etc) and real accounts (say- land, machinery, patents etc) are not closed and their balances are carried forward for the next accounting period.

     

    • Modern Approach– According to modern accounting perspective, permanent account are not closed and their balances are brought forward to the next accounting year.

     

    Permanent Accounts-

    Permanent accounts are those accounts that appear at the time of preparation of Balance Sheet. These accounts are measured cumulatively and their balances never get closed until the organization is legally wound up. These accounts include asset account, capital account and liabilities account.

    Example- As on 31st March, yyyy if the ABC and Co. had Cash at Bank amounting to 2,50,000, then that amount will be carried forward (c/f) as opening bank balance in next accounting year. If the bank balance increased by 2,00,000, then at the end of the accounting year Cash at Bank would become 4,50,000. This amount will be again c/f onto the next accounting period and the cycle keeps going.

    A snippet of the cash account will help to develop an understanding of all personal and real accounts whose balances are carried forward to the next accounting period.

    Cash Account

     

    I have also explained the accounts that get closed at the year-end for your better understanding.

    Accounts that get closed at the year-end

    • Traditional Perspective- According to traditional accounting perspective, Nominal accounts (say- factory expenses, salary & wages, depreciation, discount received, interest received etc.,) get closed at the end of the accounting year.

     

    • Modern Perspective- According to modern accounting perspective, the temporary account gets closed at the end of the accounting period. They are closed so that the previous year’s income and expenses do not get mixed with the current year’s income and expenses. This would help the users of financial statements to know the true net profit.

     

    Temporary Accounts-

    Temporary accounts are those accounts which appear at the time of preparation of Income Statement (i.e., trading and profit & loss account). These accounts get settled by either debiting or crediting them yielding Gross profit and Net profit. The temporary account includes expenses account, income account and withdrawals.

    Example- Salary paid 2,00,000 to the employees for the previous year gets closed in the previous accounting period itself and their balances are not carried forward in the next accounting year.

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    Meaning of Core Business Operations In layman's language, the term "core business operations" refers to the organization's main or essential area of activity for which it was founded or came into existence. It does not only focuses on the mission and vision of organization but also on building betteRead more

    Meaning of Core Business Operations

    In layman’s language, the term “core business operations” refers to the organization’s main or essential area of activity for which it was founded or came into existence. It does not only focuses on the mission and vision of organization but also on building better business operations strategies by-

    • Controlling market forces and supply chain management
    • Improving the quality of technology
    • Expanding the business marketplace and acquiring new businesses
    • Increasing revenue generation
    • Better customer base acquisition and customer relationship management
    • Developing new areas of activities

     

    It means that the success of an organization does not only depends upon the functioning and performance of various departments but also the company’s coordination in managing and performing various departmental activities for conducting core business operation.

    Examples of Core business operations/models

    1. The core business model of Uber is to provide on-demand services to its users. It provides a virtual mobile platform that connects users with taxi or cab drivers. Although cab drivers use their cars while performing their services. Uber earns 20-30% of the total fare amount.

    2. The core business model of Amazon is to provide an end to end virtual or e-commerce shopping experience to its customers. It connects customers (users) with the products listed by various trusted sellers. Amazon earns money through subscriptions for prime services, retail services and web services. Amazon charges 6%-25% professional fees on every product sold by the sellers on its platform.

    3. The core business model of Walmart is to provide offline and online retail services such as health and fitness, grocery and general merchandise. Walmart charges only referral fees (based on the product category) and it does not impose any charges on maintaining seller accounts.

    Core vs Non-core business operations

    Example-

    1. Uber
    • Core business operations– The core business operations of uber are mentioned above in example (1).
    • Non-core business operations– Apart from the core business operations, uber performs few non-core business operations such as- Uber Eats which provides food delivery services to its users (customers)  is not the main/core business of Uber.

     

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